ECONOMY

Turkey, IMF agree on cuts

ANKARA – Turkey’s Treasury said yesterday it had agreed with a visiting IMF team on plans to cut budget spending to meet the costs of inflation-busting wage and pension rises under its $19 billion IMF accord. The statement came at the end of an IMF mission amid market worries about the Fund’s reaction to recent hikes of 34 percent in the minimum wage and 21 percent in state pensions. The end-2004 consumer price inflation target is 12 percent. The current review of Turkey’s IMF standby arrangement, sealed after a 2001 financial crisis, is linked to the payment of a loan tranche worth about $500 million. Some $2.5 billion remains to be disbursed. «Agreement was reached on cuts to be made in budget spending in order to meet the burden on public finance… of the minimum wage and pension hikes,» the Treasury statement said. Turkish economy officials have previously said the IMF wants the government to come up with 3,000 trillion lira (some $2.2 billion) in extra revenues, primarily through tax hikes. The government has resisted the call to increase taxes. Turkey has succeeded in taming chronic inflation, bringing it below a 20 percent IMF-backed target in 2003, while achieving economic growth of 5 percent. Analysts said this gave the government some leeway in its talks with the IMF ahead of local elections in March. «This is an interim solution. The real package will come after the local elections and then the IMF will have time to see the fiscal performance in the first three months of the year,» said JP Morgan economist Yarkin Cebeci. The Treasury also said work was continuing on measures to prevent divergence from revenue projections in 2004 in order to meet a primary surplus of 6.5 percent of gross national product. The primary surplus target, central to the IMF accord, excludes payments on debt and is seen as a key indication of Turkey’s commitment to pay down its mountain of debt. In a statement issued at the same time, the IMF’s senior representative in Turkey, Odd Per Brekk, said the Fund assessed measures to compensate for the budget cost of the wage and pension hikes, as well as lower-than-expected tax revenues. «The government has decided to cut discretionary spending by 10 percent to broadly cover the budgetary costs of pension and minimum wage increases and is reviewing a range of options to address the projected revenue shortfall,» he said. The IMF team worked to develop a timetable for structural reform, focusing in particular on the steps needed to expedite reforms in the banking area, he said. A follow-up mission is expected to return to Turkey in February to complete the seventh review. After the completion of each review, the IMF sets a date for its executive board to meet and consider the release of the loan tranche.